Though we may have missed out on an accepted “summer jam” in 2015, those whose search for autotuned, bass-dropping glory on the radio dial this past month has led them to the funky financial discourse of NPR know there has been quite a logjam over Greece’s debt negotiation with the Eurozone. After missing the largest payment in the history of the International Monetary Fund (IMF) on June 30, some 1.6 billion Euros (approximately $1.8 billion), tensions grew around the world as to the future of the embattled nation’s economic standing. The relationship between Athens’ current administration, comprised of Prime Minister Alexis Tsipras’ radical-left Syriza alliance, and the financial institutions holding Greece’s debt-- the IMF, the European Financial Stability Fund, and the European Central Bank-- had eroded since the former rose to power decrying what many viewed as harsh, impractical austerity measures that came with a 2010 bailout. Now, despite a July 5 referendum in which Greek citizens voted 60-40 in favor of Syriza’s anti-austerity efforts, and despite the increasing likelihood that the IMF will grant a requested payment extension that would keep Greece in the Eurozone, some economists are wondering whether an exit still isn’t the best choice.
In a piece for the Huffington Post on July 28, renowned international economist and director of the Earth Institute at Columbia University Jeffrey Sachs detailed the disadvantages Greece has experienced relative to its Western European neighbors in the wake of the 2008 global financial crisis. “Year after year, Greece’s creditors have promised that the bailout packages would bring about a meaningful rebound in output, employment, and exports,” Sachs said. “Instead, the country has experienced a depression comparable to the decline in output and employment that Germany suffered from 1930 to 1932, the years that preceded Hitler’s rise.” Since the recession, countries like Spain and Italy were able to counteract negative economic fallout by cutting national budgets and shifting the production of domestic goods to exports, which increased overall revenue while they received increased lending capability to grow small/intermediately-sized industries at home.
However, Greece’s comparatively undiversified economy has made this difficult, as has its creditors’ unwillingness to make more funds available to Greek businesses- even as GDP in the Eurozone recently recovered to pre-recession levels. “It is one thing for Greece to attract investment to add to European capacity when markets are expanding but quite another to persuade businesses with entrenched facilities in Bavaria to move those to the outskirts of Athens,” said University of Maryland business professor Peter Morici. “Until the Nordic states led by Germany let go of their mercantilist economic strategies and set an example for economic reforms, the southern Eurozone countries are damned to high unemployment and chronic debt problems.”
Germany has highly-placed officials within the European banking system, and critics of its harsh, trickle-down spending cuts in Greece cite hypocrisy, since creditor nations like the US and UK forgave a large portion of German World War II debt in the early 1950s. At that time, beyond the practicality of encouraging private-sector industrial growth within the recovering West Germany, the move increased civic morale as communist influence continued to expand through the Eastern Bloc- a kind of deradicalization that could similarly defuse political tension between the two contemporary parties. “Either in the end they will get this sort of enormous debt relief that they’re not getting, or they will have to exit,” said New York Times columnist Paul Krugman. “[A] Greek exit would have huge implications for the future of the European project. And if Greece exits and then starts to recover, which it probably would, that, in turn, would be encouragement for other political movements to challenge the Euro.”
And that, ultimately, is the larger implication facing Europe. Greece can’t recover or satisfy its citizens without negotiating a lift in austerity, which Germany can’t do without jeopardizing its leverage over other Mediterranean countries that have similar, burgeoning, anti-regulation movements. Though recent polls show the Greek people’s favor of staying within the Eurozone as a check on potential leaders’ incompetence or corruption, Prime Minister Tsipras’ failure to emerge from IMF negotiations with any real relief could make a return to a separate currency a real possibility.